Investing Wisdom from Saurabh Mukherjea: Why Quality Matters More Than Valuation in Today’s Market

Saurabh Mukherjea, founder of Marcellus Investment Advisors, emphasizes that while valuing stocks is important, focusing solely on valuation can be misleading, especially during market turmoil. In an interview with Mint for ‘How To Invest In Samvat 2081’, he shared insights on navigating the current economic landscape.

Reflecting on the 2007-08 financial crisis in Britain and America, Mukherjea noted that during tough times, only high-quality companies can withstand the pressure. He warned that relying too much on metrics like PEG (price/earnings-to-growth) can lead to poor investment choices when markets are stressed.

In India, where corporate governance can be inconsistent, he believes it’s crucial to prioritize quality. However, he cautioned against overpaying for quality stocks, as this could lead to significant losses if interest rates rise sharply.

Mukherjea recommends focusing on high-quality large-cap stocks in the current market. He believes the Indian economy is entering a cyclical downturn after a strong recovery post-Covid-19, and recent earnings indicate potential corrections in the Nifty 50 index. He expects that small and mid-caps may suffer more during any market correction.

He illustrated the growth potential of large-cap stocks with examples like Titan and HDFC Bank, which have room to grow despite their current success. Mukherjea suggests that high-quality large caps could see greater valuation re-ratings than small caps.

Despite the economic slowdown, Mukherjea is optimistic about the IT, pharmaceuticals, and FMCG sectors. He sees positive signs, such as the potential start of the US Federal Reserve’s rate cuts, government support for the poor, and falling raw material prices.

In conclusion, Mukherjea believes that while the economy is facing challenges, there are excellent opportunities to invest in high-quality companies at reasonable valuations.